The state dependent impact of bank exposure on sovereign risk

Podstawski, Maximilian; Velinov, Anton

doi:10.1016/j.jbankfin.2017.11.002

Cited by 18 publications

(6 citation statements)

References 35 publications

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“…In general, e Yt could be a combination of technology, monetary policy, preferences and government expenditures. The inferential issues that arise when the break dates are misspecified is a topic that has not yet been explicitly analyzed in the identification-through-heteroskedasticity literature, and is the subject of future research Podstawski and Velinov (2018). Likewise, we do not have enough information to disentangle whether uncertainty shocks originate from economic policies and/or technology.5 We refer toLütkepohl (2013),Lütkepohl and Netšunajev (2017), andKilian and Lütkepohl (2017, chapter 14) for a review of this literature Chen and Netšunajev (2018).…”

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confidence: 99%

“…Our analysis, however, can be easily generalized to the case in which there are m structural breaks in the unconditional error covariance matrix, corresponding to m + 1 volatility regimes in the data. The inferential issues that arise when the break dates are misspecified is a topic that has not yet been explicitly analyzed in the identification-through-heteroskedasticity literature, and is the subject of future research Podstawski and Velinov (2018). have extended the identification approach we present and apply in this paper to the case in which the VAR parameters switch endogenously across volatility regimes.…”

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confidence: 99%

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Uncertainty across volatility regimes

Angelini

Bacchiocchi

Caggiano

et al. 2018

J of Applied Econometrics

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Summary We propose a nonrecursive identification scheme for uncertainty shocks that exploits breaks in the volatility of macroeconomic variables and is novel in the literature on uncertainty. This approach allows us to simultaneously address two major questions in the empirical literature: Is uncertainty a cause or effect of decline in economic activity? Does the relationship between uncertainty and economic activity change across macroeconomic regimes? Results based on a small‐scale vector autoregression with US monthly data suggest that (i) uncertainty is an exogenous source of decline of economic activity, and (ii) the effects of uncertainty shocks amplify in periods of economic and financial turmoil.

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confidence: 99%

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confidence: 99%

Uncertainty across volatility regimes

Angelini

Bacchiocchi

Caggiano

et al. 2018

J of Applied Econometrics

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“…In their study, Podstawski and Velinov (2018) also indicated that the destabilizing impact arising from banks' exposure to sovereign default risk in relatively less developed countries was evident. On the other hand, increased bank exposure was seen to have a stabilizing impact throughout extraordinary times for the countries less influenced by the crisisnamely, France, Germany, the Netherlands, and Austria.…”

Section: Risk Management As a Matter Of Market Discipline And Supervisionmentioning

confidence: 91%

“…Analyzing the credit risk on the performance of 26 Turkish banks between 2005 and 2017, Ekinci and Poyraz (2019) stated that there is a correlation between credit risk management and productivity of Turkish deposit banks. Podstawski and Velinov (2018) define 'Credit Supply Channel', 'Implicit Bailout Channel', 'Portfolio Channel', 'Collateral Channel', 'Guarantee Channel', and 'Rating Channel' as contagion channels of the sovereign-bank nexus. Ghenimi et al (2017) investigated primary causes of banking fragility and concluded that credit risk and liquidity risk unconnectedly impact bank stability and that their interaction leads to instability.…”

Section: Macro-economic Risk and Loan Performancementioning

confidence: 99%

Sovereign-Bank Nexus of Turkey: An Analysis of Sovereign Risk and Banking Industry Performance Indicators Based on Camels Rating System

Altay¹

2021

Doğuş Üniversitesi Dergisi

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This study aims to examine the relationship between sovereign risk and financial performance of the Turkish banking industry in order to identify the interaction channels between these two. To this end, financial data relating to the Turkish banking industry were analyzed based on the CAMELS rating system and were compared with Turkey's Credit Default Swap rates using the most appropriate causality analysis tools. The results showed that there are significant causal relations between sovereign risk and several banking industry indicators of CAMELS rating groups. Significant results were obtained especially as to the causalities between sovereign risk and CAMELS components, which are Capital Adequacy, Asset Quality, Liquidity, and Sensitivity. Empirical study indicates that 13 variables out 26 variables have causal relationship with credit default swap rates according to Toda and Yamamoto Granger non-causality test results. Although the directions of causality vary among these variables, those results, which indicate influence of credit default swap rates on banking performance indicators, are remarkable.

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“…Importantly, our analysis also takes into consideration possible endogeneity problems derived from adverse macroeconomic conditions (e.g., Angelini et al, 2017;Ghosh, 2017;Lakdawala et al, 2017) and the sovereign debt crisis, the so-called 'sovereign-bank nexus' (e.g., Altavilla et al, 2014;Buch et al, 2016;Li and Zinna, 2014;Podstawski and Velinov, 2018). 5 In some countries, the crisis has been originated in banks, and afterwards transmitted to governments, the so-called 'Irish style' crisis.…”

Section: Introductionmentioning

confidence: 99%

Non-Performing Loans, Cost of Capital, and Lending Supply: Lessons from the Eurozone Banking Crisis

Chiesa

Mansilla-Fernández

2018

SSRN Journal

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This paper develops a theoretical model as a foundation of empirical analysis of the transmission channel of non-performing loans (NPLs) on bank cost of capital, credit and liquidity creation in the Eurozone. Empirical results confirm the model's predictions and suggest that holding non-performing loans increases the cost of capital for banks in the short-term and the long-term. Moreover, the increased cost of capital reduces credit and liquidity creation, and the more so the less capitalized is the bank. This phenomenon is found to be economically more significant for European periphery country banks than for core country banks. The identification of the transmission channel is robust to the Granger predictability test.creation to the bank's cost of capital, which means that the lending volume granted by banks endowed with relatively higher levels of capital is less affected by changes in investors' required return on bank equity holdings.Importantly, taking into consideration that European periphery country banks accumulated comparatively greater levels of NPLs than European core country banks, we estimate separately the transmission channel for both 'Europes'. We find that this phenomenon is economically more significant for banks operating in the Eurozone periphery countries than for those in the Eurozone core countries.The robustness of our results is validated by repeating the experiment for a sub-sample of German banks. Note the reader that German banks were commonly considered to be the safest ones in the Eurozone, because they held the lowest levels of NPLs compared to banks in other countries, and Germany has been more immune from macro/crisis shocks. Since we obtain qualitatively similar estimates for German banks, we draw the conclusion that our results are not driven by hidden common factors. Finally, the Granger predictability test confirms the uniqueness of the direction of the transmission channel. These results confirm the theoretical foundations of the transmission channel under investigation.

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The state dependent impact of bank exposure on sovereign risk

Cited by 18 publications

References 35 publications

Uncertainty across volatility regimes

Uncertainty across volatility regimes

Sovereign-Bank Nexus of Turkey: An Analysis of Sovereign Risk and Banking Industry Performance Indicators Based on Camels Rating System

Non-Performing Loans, Cost of Capital, and Lending Supply: Lessons from the Eurozone Banking Crisis

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